Loss Aversion and Labor Supply
In many occupations workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difficult. Here we present evidence from studies examining labor supply responses in “neoclassical environments” in which workers are free to choose when and how much to work. Despite the favorable environment the results cast doubt on the neoclassical model. They are, however, consistent with a model of reference dependent preferences exhibiting loss aversion and diminishing sensitivity.
|Date of creation:||Nov 2003|
|Date of revision:|
|Publication status:||published in: Journal of the European Economic Association, 2004, 2 (2-3), 216-228|
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- Ernst Fehr & Lorenz Goette, 2007.
"Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment,"
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- Fehr, Ernst & Götte, Lorenz, 2004. "Do Workers Work More When Wages Are High? Evidence from a Randomized Field Experiment," IZA Discussion Papers 1002, Institute for the Study of Labor (IZA).
- Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers," Working Papers 110, Princeton University, Department of Economics, Center for Economic Policy Studies..
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